Managed Futures ‘sort of’ Participate on Bernanke Rollercoaster

Stocks lit up like a Christmas tree following the Bernank’s announcement, resulting with a substantial risk on day yesterday. The Dow Jones ended up 1% at 15,676, the S&P also made a one percent gain on the day ending at 1,725. Gold Futures were up more than 4%, with Silver up 6%, Crude Oil up 2.5%, and with 10yr and 30yr bonds up more than 1%, and the USD down 1.3% . Today saw some small retracements in Energies, Bonds and Currencies (past performance is not necessarily indicative of future results).

Finviz Risk On Day BernankeChart Courtesy: Finviz.com
Disclaimer: (past performance is not necessarily indicative of future results)

Where have we seen this neon green sight before? Oh, that’s right, it was the last time Federal Reserve Chairman got up on a podium and spoke about the possibility of maybe slightly thinking about ending Quantitative Easing, but quite some time later.  Keeping in tune of being promisingly ambiguous, Bernanke announced the fed would not “taper” QE, until whenever they decide it’s the right time. By now, someone should have a Bernanke-o-meter, gauging moves in markets for each word or syllable spouted from Fed Chairman Bernanke’s mouth.

How did managed futures take the atomic green up day?  We took a look at the results for the Newedge CTA index yesterday and found a positive daily return, but unfortunately not at the +1% to +3% clip other assets rose, with the index up just +0.25% and Trend Index up +0.48%.  Why so small? Well, managed futures programs aren’t completely ‘risk on’, and likely had large winners AND losers yesterday, netting out at a slight positive (hey, we’ll take what we can get right now).  In fact, September has seen three days with a higher daily return than “the big event” yesterday,  showing once again that managed futures truly do dance to a different beat.

BernankePhoto Courtesy: Moon Battery

As for the whole Bernanke and the QE thing… Good ol’ Bernanke citied many worrisome economic factors on the horizon including tighter monetary conditions, rising mortgage rates, as well as future debates in Washington over the sequester and debt ceiling. Forbes outlines the chairman’s restrained statement on the economy.

“The Committee sees the downside risks to the outlook for the economy and the labor market as having diminished, on net, since last fall, but the tightening of financial conditions observed in recent months, if sustained, could slow the pace of improvement in the economy and labor market,” read the statement, which also made references to the fact that “mortgage rates have risen further and fiscal policy is restraining economic growth.”

In the end, the committee states that there is no time table in place, as there are too many uncertain economic factors at play. However, in his speech, the chairman did say that the national unemployment rate must be below 6.5% before they will consider tapering. Some analysts say it will start next year some say 2014, and others think it won’t happen till 2016.

So about all that talk about the negative roll yield in a rising rate environment and managed futures performance in rising interest rate periods … we may have to wait a while and look for some good old fashioned grain, energy, or currency trends.





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